Tuesday, June 23, 2009

Mortgage approvals increase in May

Is the glass half empty or half full.

According to seasonally adjusted data from the British Bankers Association, mortgage approvals reached 31,000; 74 percent up from the November peak. However, approvals are down 50 percent from a typical pre-crash month.

For what it is worth, I think there is a recovery taking place. Moreover, I fear that it will gather pace on the coming months.

6 comments:

There's the number of mortgage approvals and then there's the volume (from the same BBC article): "Net new mortgage lending, of £2.3bn in May, was again at its lowest level since March 2001, having fallen from £2.5bn in April."

So perhaps lots of smaller mortgages to people who unfortunately don't know that there is nothing to sustain any increase in prices.

Another BBC article says: "Mortgage lending fell back in May, according to the latest figures from the Council of Mortgage Lenders (CML). Gross lending totalled £10.3bn, which was 2% lower than in April and 58% lower than in May 2008."

Personally, I saw a house posted in my town for £105K which looks much nicer than the one across the road that's been on the market for £114K for over a year.

Also, I now subscribe to Rightmove RSS feeds for properties in my area since the feed also shows the previous price when a seller cuts their asking price. I've seen lots of properties being cut by £5-10,000 -- and still staying on the market.

You worry too much. It's unrealistic to expect the house price crash to proceed at an orderly 1.5% per month until it bottoms out after a 35 or 40% crash. There will be months when some indicators appear to show things picking up. However, as Carol says, whilst the number of mortgage approvals may have risen, the volume lent has actually declined. What's more the market needs around 60,000 – 70,000 monthly approvals just to stabilise – way above last month's 31,000.

The economy may be coming out of recession, but as you know, unemployment will continue to rise for the next 12-18 months at least. My guess is that we'll be heading close to 3mn unemployed. The actual figure is not that significant. More important is the uncertainty the threat of unemployment induces. There's no way the housing market will recover under such circumstances.

You can also count on interest rate rises once recovery is assured. We may differ in out view on inflation, but one thing is certain – interest rates will have to rise sooner or later. Again, this will kill off any possibility of a bounce in the housing market.

Finally there's the question of psychology. People who buy houses are not the most sophisticated of investors – some of them even think houses are for living in. So, just as they persuaded themselves that prices can only ever rise, they have now persuaded themselves they can only ever fall.

We have probably come to the end of the really rapid phase of house price declines where prices were falling around 4.5% per quarter, but we are still a long way from the market stabilising, let alone recovering. My guess is that we'll be in for a slower downward trend for the next couple of years until the bottom is reached. After that is anyone's guess. For the moment I'm afraid we need patience. I just hope my wife understand this!

It would seem to me that if I had wisely sold my skanky flat at the peak, and was sitting on my cash pile receiving skanky interest that does not pay my rent, I might consider purchasing a stately home. This would save me rent, allow me 'homemake' settle down, and if I can buy at peak less say 30pct my saving on my rent might well keep up with the house price depreciation. Which is what I think is happening. The canny STR is throwing in the towel and buying.I think its therefore a short term blip, because we may have all seen it coming but there weren't that many who went out got their HIPS and stuck their house on the market in 2007 to go to live in rented property.